EVALUATION OF SIZE AND BOOK-TO-MARKET FACTORS IN HEALTH RELATED MUTUAL FUNDS

Fama and French proposed a three factor model to better measure returns. Their model has become a standard tool for empirical studies of asset and portfolio returns. Fama and French add firm size and a book-to-market ratio to the market index to explain average returns. These additional factors are motivated by the observations that average returns on stocks of small firms and on stocks of firms with a high ratio of book value of equity to market value of equity have historically been higher than predicted by the security market line of the Capital Asset Pricing Model. The Fama/French model is utilized in this study for evaluating the health care mutual funds.